Offering Will Be Most Closely Watched
Since Netscape Started '90s Net Frenzy

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
April 29, 2004 3:40 p.m.

Google Inc. filed to go public today, setting plans to raise as much as $2.7 billion in an initial public offering and giving investors their first look at the secretive company's revenue and earnings.

The deal's lead underwriters are Credit Suisse First Boston and Morgan Stanley. Unlike a traditional initial public offering, Google plans to sell the shares through an unusual auction conducted by its underwriters on the company's behalf, in an effort to make the shares more widely available.

The filing didn't specify a price per share. The $2.7 billion proposed maximum size of the deal -- which is used to determine the size of filing fees and can change later -- would immediately rank it among the fifteen largest IPOs in U.S. history. Estimates of the post-offering market value of the company have varied significantly, topping out at around $25 billion. (See chart.)

According to the filing with the Securities and Exchange Commission, the company posted a profit of $105.6 million in the year ended Dec. 31, 2003, up from $99.7 million a year earlier. The company had revenue of $961.9 million in the recent year, up from $347.8 million in the year-earlier period.

The company has been profitable since 2001, when it posted net income of $7 million on revenue of $86.4 million.

The offering documents were filed with a lengthy letter, called the "Owner's Manual" for the company. In it, co-founder Larry Page said he and co-founder Sergey Brin have worried that the "standard structure of public ownership may jeopardize the independence and focused objectivity that have been most important in Google's past success and that we consider most fundamental for its future." (See text of the letter.)

As a result, the founders "have designed a corporate structure that will protect Google's ability to innovate and retain its most distinctive characteristics." Part of that will be a dual-class structure, in which the founders will hold a higher-vote class of stock that will allow them to control much of the company's fate.

Executive Salaries

According to the filing, Chief Executive Eric Schmidt made $250,000 in salary and got a $301,556 bonus last year, plus other compensation of $2,894. Co-founders Mr. Brin, now president of technology and Mr. Page, now president of products, both got salaries of $150,000 and bonuses of $206,556. (See more on compensation.)

Google also revealed other closely guarded secrets, such as how many employees it has. As of March 31, 2004, the filing says, Google had 1,907 employees, consisting of 596 in research and development, 961 in sales and marketing and 350 in general and administrative.

Although Google's stock won't actually be sold for several more months, Thursday's filing represents a significant milestone in the company's evolution from a fun-loving start-up to a corporate adolescent that will be held more accountable for how it manages its money.

The company's headstrong founders, Messrs. Page and Brin, long resisted going public, to avoid disclosing details about the business and their strategy. From the earliest days, the two Stanford graduate students limited investments by venture capitalists, so that they could continue to call the shots and allow themselves as much freedom as possible.

Echoes of Netscape Deal

The deal has all of the hoopla of the biggest IPOs of the 1990s, when Netscape Communications sold shares publicly and helped set off a frenzy that sent the stock market soaring. As in some 1990s deals, this public offering stands to make some computer-science whiz kids wealthy beyond their wildest dreams.

Some things, however, are different now. Google is already an established powerhouse, unlike so many of the young wonders of the bubble era. And its IPO will test many of the reforms put in place by regulators in the wake of the bubble's burst. Those reforms are intended to wipe out abuses that favored Wall Street investment-banking and trading clients, and Wall Street itself, at the expense of many other investors.

The enthusiasm for a Google IPO also demonstrates the importance the search function has assumed in how people use the Internet, helping shape the sites they view, the news they read and the products they buy. There is a revenue stream to match: Advertisers increasingly use search sites as a way to buy more targeted advertising, since the sites can match up ads with what people are looking for. Microsoft Corp. and Yahoo Inc. are among the players that have concluded that search is of such strategic importance that they have poured money into their own search offerings recently.

Google offers its search engine to Internet users free of charge. It also licenses the technology to organizations such as Procter & Gamble Co. and the U.S. Army for their internal use and to Web sites such as Time Warner Inc.'s America Online unit to power consumer searches. Most of Google's revenue comes from small text ads that Google sells on its own site, as well as the Web pages of other companies. Advertisers bid for the right to have ads appear each time a user searches for certain keywords or those words appear on the Web site of a Google partner.​

New York Stock Exchange or Nasdaq Stock Market? Google Inc.'s IPO filing left out one important detail: where the most anticipated new issue in recent memory will be listed.

Instead of telling potential investors whether it would list its soon-to-be-public shares on Nasdaq Stock Market Inc., the home to many high-technology companies, or on the New York Stock Exchange, the venue of choice for most large companies, Google said this in its just-filed initial public offering documents, "We expect to apply to list our Class A common stock on either the New York Stock Exchange or the Nasdaq National Market."

Since the Mountain View, Calif., Internet-search pioneer hasn't picked a market, its stock symbol also is still a question. Companies listed on the NYSE typically have symbols of three letters or less, while Nasdaq stocks commonly sport four-letter ones. (As for those coveted one-letter Big Board symbols, "G" already is taken, by Gillette Co.)

"There should be quite a little war about [the listing], and I hope they pick the New York Stock Exchange," said John Jakobson, a longtime member of the NYSE who leases out his seat. Nasdaq Chief Executive Robert Greifeld said to reporters yesterday, "We're certainly excited to have the opportunity to communicate the Nasdaq value proposition to the Google management team." A NYSE spokesman declined to comment on the matter.

Some market observers see the Google listing as Nasdaq's to lose, given its reputation as a home for high-tech companies. Of Google's move to put off a listing decision, Philadelphia Stock Exchange Chairman Meyer "Sandy" Frucher says: "On the one hand, I'd say this is a break for [the NYSE] because traditionally the high-tech stocks go to the Nasdaq. Or this is a break for Nasdaq -- they haven't lost it."

For the markets, listings are a major source of revenue. One strike against the NYSE is that its image has been sullied recently. Last year, an executive-pay scandal provoked the ouster of Dick Grasso as NYSE chairman and chief executive. And in March, securities regulators alleged that the Big Board's largest stock-trading "specialists" shortchanged some customers by trading at inappropriate times for their own firms' accounts. The firms recently settled the charges without admitting wrongdoing.

Google may not have to pick just one market. The company could decide to list its shares on both Nasdaq and the NYSE. If Google took such a step, it wouldn't be the only company to do so. In an attempt to chip away at the NYSE's listings business, Nasdaq recently embarked on a campaign to persuade NYSE companies to list their shares on Nasdaq without actually leaving the Big Board. So far, seven NYSE-listed companies have consented to such "dual listings."​